Many proteins are built from structurally distinct subunits that communicate with each other by means of a conformational change in order to achieve overall function. The primary goal of this project is to create a new class of bi-functional, two-domain proteins that capture the properties of this conformationally-driven allosteric switch. This aim will be accomplished by implementing the novel concept of mutually exclusive folding, in which the free energy stored in the native structure of one subunit is used to drive unfolding of another subunit within the same molecule. A fusion protein is created by inserting one protein into a surface loop of another. A topological constraint causes the two domains to engage in a thermodynamic tug-of-war, from which only one can emerge in its folded state at any given-time. They cannot simultaneously exist in their native states. This conformational equilibrium cooperative, reversible, and controllable by ligand binding serves as a model for the coupled binding and folding mechanism widely used to mediate protein-protein interactions and cellular signaling processes. The unique properties afforded by mutually exclusive folding will be additionally exploited to develop two new applications. The first is an Escherichia coil based approach for rapidly selecting ultra-stable protein variants in vivo. The mutually exclusive folding design, combined with the use of a cytotoxic enzyme for one of the protein domains, results in a selection method of unprecedented versatility and throughput. The second is a class of cytotoxic enzymes that kills specific cell types. By virtue of the mutually exclusive folding design, activity of the catalytic domain is turned on or off by binding of a ligand to an engineered regulatory domain. Ligand binding domains from any one of a large number of proteins can perform this function. This switching mechanism forms the basis for developing cytotoxic proteins that are activated by a wide variety of cell-specific effector molecules, and can thus target cancerous or virally infected cells for destruction.